By Josh Zumbrun
WASHINGTON -- The Trump administration said it would spend $16
billion to offset the impact on American agriculture from the trade
conflict with China, with most of the money taking the form of
direct payments to U.S. farmers.
The move Thursday followed a breakdown in talks earlier this
month between Washington and Beijing. Amid expectations that
American farmers will be hindered selling crops to China's 1.4
billion-person market, commodity prices, which were already mired
in a years-long slump, sank further to their lowest level in more
than 10 years.
President Trump directed the U.S. Department of Agriculture to
create the program "because he knew farmers would bear the brunt of
this lack of trade deal with China once again," said Agriculture
Secretary Sonny Perdue. "Farmers themselves will tell you they'd
rather have trade than aid," he said, but in the absence of a deal
"they'll need some support."
The program echoes a 2018 initiative that authorized $12 billion
in funding. In first tweeting the idea this year, Mr. Trump had
proposed a program to use tariff revenue to buy crops and
distribute them internationally for humanitarian purposes. The USDA
program announced Thursday won't use tariff revenue directly, nor
will it have an international humanitarian component.
The money for the initiative will be drawn from a farm-support
account controlled by the USDA and as such won't require fresh
congressional approval.
The announcement marks the second move in the past week by the
administration to soften the blow on U.S. farmers from
trade-conflict impacts.
On Friday, the Trump administration struck a deal with Canada
and Mexico, in which the U.S. agreed to drop the steel and aluminum
tariffs imposed a year ago. In exchange, Canada and Mexico dropped
their retaliatory tariffs on about $15 billion of U.S. goods, which
had fallen heavily on agriculture.
Some farm groups cheered the new aid package, saying it would
help cushion the blow.
"We thank President Trump for recognizing that our patriot
farmers have borne the brunt of China's trade retaliation," said
David Herring, a North Carolina pork producer and president of the
National Pork Producers Council.
Mr. Herring said U.S. pork producers were also anxious to
re-open trade with China to take advantage of an "historic sales
opportunity," referring to the deadly virus that has decimated
China's hog herds and prompted buyers there to purchase more meat
from U.S. producers.
Direct payments to farmers are the main basis of the new program
as they were last year.
In last year's program, farmers received a differing payment for
different crops. Under this year's program, the money will be
distributed based on USDA's estimate of the economic damage
inflicted on different counties. The payment will differ
county-by-county and will be based on the number of acres planted,
not the specific crop.
The new program will include payments to farmers of a variety of
products, from soybeans, sorghum, wheat and rice to pork and dairy.
Although the effort is aimed at offsetting the damage from trade
tensions, it also will be a welcome reprieve to farmers beset by
high debt levels incurred earlier this decade when prices were
higher, record flooding across much of the Midwest and growing
competition from other agricultural powerhouses such as Russia and
Brazil.
In response to the U.S. imposing 25% tariffs on roughly $250
billion of Chinese imports over the past year, Beijing has imposed
tariffs on agricultural products, and state-controlled companies in
China largely halted buying U.S. farm goods.
The result has been climbing commodity prices for other parts of
the world -- Brazil in particular has capitalized by selling
soybeans to China -- but plunging prices in the U.S. market. The
S&P GSCI Agricultural Commodities hit its lowest level last
week in more than 10 years.
Soybeans are the biggest crop export to China. Before the
conflict, the U.S. shipped $10 billion to $12 billion a year of
soybeans to China; over the past year, that has fallen to about $2
billion.
Mr. Trump has suggested that the administration is using tariff
revenue to pay for the farm-aid program, but the actual source of
funding would be a program known as the Commodity Credit
Corporation.
"Legally, you can't direct tariff payments into agriculture,"
said Mr. Perdue, but "the president feels like China is paying for
this program" via the collection of tariff revenue.
"Tariff money won't go directly to this program but it goes
indirectly by going into the Treasury," he said.
The CCC is a Depression-era institution, created in 1933 and
controlled by the Agriculture Department, which has the standing
authority to draw $30 billion a year from the U.S. Treasury and
spend it on programs that support American farmers. Because of its
standing authority, no special congressional approval of the
program is needed.
"USDA is unique among agencies, in having a permanent automatic
$30 billion annual spending authority," said Jessica Wasserman, a
partner in the international and government relations practice at
Greenspoon Marder LLP. "This is why agriculture and not other
sectors are given funding to counter the tariffs."
The $30 billion available to CCC programs has been fixed since
1987; the program isn't formally linked to tariff revenue in any
way. Tariff revenue doesn't make the CCC's authorities larger or
smaller. No funds are directly transferred from tariff collections
to the Agriculture Department under the program.
When Mr. Trump directed the USDA to carry out the program he
also said the U.S. would buy products "from our Great Farmers, in
larger amounts than China ever did, and ship it to poor &
starving countries in the form of humanitarian assistance."
The USDA said Thursday it wouldn't conduct any international
humanitarian assistance program as part of the aid package. Mr.
Perdue said that the president "learned of the inefficiency and
logistical challenge" of buying crops and distributing them
internationally for food aid and instead backed using the farm-aid
program from last year.
--Jesse Newman contributed to this article.
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
(END) Dow Jones Newswires
May 23, 2019 14:15 ET (18:15 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.